Regional highlights: East Asia and Pacific

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East Asia and Pacific is characterized by great diversity. The region’s 18 economies covered in the GCI 2016–2017 span a large part of the development ladder, from Cambodia to Singapore, and include three of the world’s 10 largest economies: China, Japan, and Indonesia. The region’s emerging economies, led by China, have been supporting the modest global recovery since the global financial crisis. These economies accounted for almost two-fifths of global growth last year, more than twice the combined contribution of all other emerging regions.13 Today, global economic prospects look less favorable as a result of China’s slowdown, anemic growth in Japan and other advanced economies, and persistently low commodity prices undermining the growth and public finances of several economies in the region—notably Indonesia and Mongolia.14

The GCI results reveal contrasts in the region. Its advanced economies continue to perform strongly. Led by Singapore, 2nd overall behind Switzerland for the sixth consecutive year, these economies all feature in the top 30 of the GCI rankings. Losing ground since last year, Japan ranks 8th (down two) and Hong Kong SAR ranks 9th (down two). New Zealand advances three positions to 13th, while Taiwan, China is up one notch to 14th. Further down, Australia (22nd) and the Republic of Korea (26th) both improve their scores but their positions are unchanged.

Among emerging economies, Malaysia (25th) continues to lead the region, despite losing some ground this year following six years of improvement. China remains steady at 28th for the third year in a row.

Reflected in the evolution of the GCI score since the 2007–2008 edition, the overall competitiveness trends for the region are overwhelmingly positive: 13 of the region’s 15 economies covered since 2007 achieve a higher score today, with Cambodia, China, and the Philippines posting the largest gains (see Figure 11). The only exceptions are Korea and Thailand, though for the latter the loss has been small and from a high base. There are signs, however, that the generalized upward trend is tapering off somewhat: for half of the economies in the region, the score is either stable (score difference of less than 0.01 point) or lower than last year. Still, the contrast with South Asia remains very stark. Six of the nine East Asian emerging economies feature in the top half of the GCI rankings; among the six South Asian economies covered, only India achieves this feat.

The region’s advanced economies need to further develop their innovation capacity. Japan and Singapore are the only economies in the region among the world’s top 10 innovators, ranking respectively 8th and 9th in the innovation pillar. Japan, Korea (which has dropped from 8th to 20th in the pillar since 2007), and to a lesser extent Taiwan, China (11th), have experienced a steady erosion of their innovation edge since 2007. Meanwhile New Zealand (23rd), although it has improved significantly since 2007, Australia (26th), and Hong Kong (27th) remain far behind the world’s innovation powerhouses.

Since 2007, most emerging economies have improved on the basic drivers of competitiveness (i.e., on the first four pillars of the GCI)—often markedly, though also often from a low base. With the exception of Malaysia and Thailand, these economies have made major strides in improving governance, including in tackling corruption. All of them except Thailand have also made significant progress in terms of transport infrastructure, which has traditionally been a major constraint to growth for these economies. A similar generalized upward trend is seen in health and basic education. In the past decade, the situation has greatly improved in this area—except in Indonesia, which achieves some of the worst health outcomes outside sub-Saharan Africa. On the macroeconomic front, the situation has also improved almost everywhere, with inflation at a 10-year low in most economies. The fiscal situation is also relatively sound, with most economies posting deficits lower than 3 percent. The notable exception is Mongolia, where the macroeconomic situation remains worryingly volatile.

Despite positive developments, there is no room for complacency. All emerging economies in the region have achieved middle-income status, and to sustain growth they now need to pay increasing attention to the more complex areas of competitiveness, where their shortcomings are many. Digital infrastructure and ICT uptake are showing significant progress, but becoming more innovative is also a pressing imperative—especially for Malaysia, China, and Thailand—if they are to avoid the middle-income trap.15

13
See World Bank 2016. In the World Bank’s classification, Developing East Asia and Pacific comprises Cambodia, China, Indonesia, Lao PDR, Malaysia, Mongolia, the Philippines, Thailand, and Vietnam, which are all covered in the GCI 2016–2017, as well as Myanmar, Papua New Guinea, Timor-Leste, and the Pacific Island countries.

15
The middle-income trap defines a state in which an economy has lost its competitive edge in the exportation of manufactured goods because its wages have risen, but are unable yet to compete with more advanced economies in the high-value-added market.